Health versus Wealth Is a False Choice
National Review, March 26, 2020
New York City, March 2020 © Andrew Stuttaford
Deciding how and, critically, when, to put America back to work again after the COVID-19 shutdowns has, all too often, been framed as a debate between green eyeshade and stethoscope. Or, to put it another way, risking lives to put a few points on the Dow. Today’s appalling unemployment data are a reminder that describing the choice in that way is to play politics with a pandemic, and to avoid confronting the daunting dilemmas that will be involved in finding the right time to sound some sort of All Clear.
Initial jobless claims surged to a (seasonally adjusted) 3.28 million for the week ended March 21. For comparison, the weekly figure throughout most of last year was in the low 200,000s. 3.28 million was by a long measure — even allowing for the growth in the working-age population — the worst figure since these data started being collected in 1967. (And given that it won’t include the many gig workers who no longer have any gigs, it will likely be an undercount.) The previous weekly record for initial claims was 695,000, set in October 1982 during the recession that accompanied Fed chairman Paul Volcker’s attempt to bring inflation under control.
And last week’s horrifying data will not be the last. There are plenty of grim projections to choose from. But by averaging forecasts made by two of his colleagues at the St. Louis Fed, economist Miguel Faria-e-Castro came up with a second-quarter unemployment rate of 32.1 percent (this compares with the highest annual average in history, 24.9 percent in 1933, a time when the Great Depression was well underway). Faria-e-Castro was careful to label his work as “back-of-the-envelope” calculations (his methodology can be found at the link), as indeed he had to. “This is”, he noted, “a rather unique shock that is unlike any other experienced by the U.S. economy in the last 100 years.”
It’s an indication of just how difficult it is to make forecasts as the U.S. enters deeper into uncharted territory that, after making some (necessary) adjustments for employees in health care and education, Faria-e-Castro was left with a range of potential unemployment rates that stretched out between an “optimistic” 10.5 percent and a “pessimistic” 40.6 percent. And he still had to qualify that vast spread with caveats. For example, “many businesses may send workers home with pay instead of laying them off outright.
”It is, however, safe to assume that the longer the shutdowns continue (at least at current levels), the greater will be the number laid off, and the lower the rate at which battered companies will, despite the stimulus package, be willing to hire them back. Corporate balance sheets will be depleted and, in certain industries, the ability to plan (not least when it comes to capital expenditure) for 2021 (something that would ordinarily be relevant for recruitment within the next few months) will shrink every day the lockdowns persist.
Faria-e-Castro is undeniably correct to regard the impact of COVID-19 (and the efforts to contain it) as a unique economic event. Nevertheless, any hopes that there will be a V-shaped recovery in the jobs market already seem (to me) as unrealistic as any assumptions that there will be a V-shaped recovery in the economy generally. To be sure, once the shutdowns come to an end (or even start tapering off), net hiring will pick up sharply, but not by enough, I suspect, to restore employment levels to where they stood before the virus struck. Consumer spending (70 percent of U.S. GDP) will recover somewhat. But, as I mentioned the other day, the conditions will not be there for a spending spree. There are many potential brakes on demand, but among them will be the unpleasant probability that COVID-19 will remain in our midst for quite some time yet. Moreover, in the absence of dramatic medical developments, even if its rate of transmission does ease over the summer, the virus could well return with renewed vigor in the latter part of the year, a bleak prospect of which employers as well as consumers will be all too well aware. As a result, a pizzeria, say, may reopen, but with only three waiters rather than the five it had on its staff before.
The financial cost of unemployment, especially to the many without much (or any) in the way of savings, is relatively easy to assess. But the psychological damage to, and the increased medical vulnerability of, those who have been thrown out of work should not be overlooked either.
To portray the decision on when and how to fire up the economy again as a simple choice between wealth and health is simply wrong: It’s distinctly more complicated than that.